HM Revenue and Customs (HMRC) is inviting more than half a million businesses to try a pilot for a new online VAT service ahead of new rules coming into force in April 2019.

HMRC claims that Making Tax Digital (MTD) for VAT will make it easier for businesses to manage their tax and will save them, and their agents, time.

From April 1, 2019, under MTD, around 1m businesses registered for VAT with a taxable turnover above £85,000 will need to keep their VAT records digitally and file their returns using MTD-compatible software.

The pilot opens for around half a million businesses whose affairs are up to date and straightforward, and will extend to most other business types over the coming months. HMRC has also listened to concerns and will give a small group of customers with more complex requirements a further six months to prepare. This will ensure there is sufficient time for testing the service with them in the pilot before they are required to join.

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Mel Stride MP, Financial Secretary to the Treasury, said: “HMRC is transforming the tax administration so that it’s more effective, more efficient and easier for taxpayers. This announcement means that around half a million businesses will be able to join MTD and start filing their VAT returns online making it easier to get their tax right first time.

“More and more businesses use digital tools every day to help them operate – tax shouldn’t be different. This is a major step towards bringing VAT into the 21st century.”

Theresa Middleton, Director for Making Tax Digital for Business, said: "Millions of people are already banking, paying bills and interacting with their suppliers and customers online. Using digital tools to help businesses manage their business income and expenses and get their tax right builds on this momentum and will also help them get more control over their finances.”

Background
Eligible businesses and agents are encouraged to join the pilot as soon as they can. More information can be found on GOV.UK.

The live pilot of MTD for VAT started in April on a small scale with invited customers. Since then HMRC has successfully tested the end to end process with small numbers of businesses and agents, using a range of different MTD compatible software products. The pilot is now open to sole traders and companies (except those which are part of a VAT group or VAT Division) provided they are up to date with their VAT.

The six month deferral will apply to around 3.5 per cent who fall into one of the following categories: trusts, ‘not for profit’ organisations that are not companies (this includes some charities), VAT divisions, VAT groups, those public sector entities required to provide additional information alongside their VAT return (such as Government departments and NHS Trusts), local authorities, public corporations, traders based overseas, those required to make payments on account and annual accounting scheme users. These groups will be mandated to use MTD from 1 October 2019.

Any business not in one of these groups and over the VAT reporting threshold (£85,000) will be mandated to use MTD for VAT from April 2019 as previously announced. HMRC will gradually expand the service to cover all types of VAT registered businesses.

The pilot is currently open to sole traders and companies (except those which are part of a VAT group or VAT Division) provided they are up to date with their VAT and have not incurred a default surcharge in the last 24 months. Those who trade with the EU, are based overseas, submit annually, make payments on account, use the VAT Flat Rate Scheme, and those newly registered for VAT that have not previously submitted a VAT return, are unable to join.

The deadlines for sending VAT returns and making payments are not changing.